Weekly Economic Update-Mixed Messages

Housing news sent some mixed messages this week. Home builders are pretty sure their houses will sell if they can get them built, but that is steadily growing more difficult. Still housing starts are waaaay higher than last year, even as permitting slows.

Existing home sales declined for the second month, but available homes are flying off the market. Hope prevails as inventories grew for the second month.

Getting into homeownership is challenging right now, but Fannie Mae says it is (net) worth it. Household wealth among homeowners hit an all-time high in Q1 with the growth of equity playing a big role.

Housing news this week was mixed at best, mixed up at worst. First off was a two-point drop in the National Association of Home Builders (NAHB’s) Housing Market Index. The HMI is a measure of builder confidence in the new home market, and while builders see a strong market for their product, they are facing a lot of problems getting it there. NAHB cited a shortage of buildable lots and rising commodity prices, particularly of lumber where rising prices have added nearly $9,000 to the price of a new single-family home in the last 18 months.

In a separate report, Fannie Mae’s economists added another homebuilder hurdle to the list. Unemployment in the construction industry, particularly for skilled labor, is at the lowest level in at least two decades--4.4%--putting upward pressure on wages.

Still, the HMI remains at a high level, 68, and builders are still building. The residential construction report for May reflected a 5.0% increase in housing starts since April and 20% compared to last May. For once it wasn’t just the multi-family sector carrying the load either, although those numbers were also strong. Single-family starts were up 3.9%.

Permits however sunk for the second month, dipping 4.6% from April’s pace but remaining 8% higher year-over-year. Builders still have a healthy backlog of permits under which they haven’t yet started building, so perhaps they are merely pausing and catching up.

May’s existing home sales were expected to rise, but pulled back slightly, down 0.4% compared to April, but were slower year-over-year for the second straight month. The National Association of Realtors (NAR) said the Northeast was the only region where sales rose. They fell 0.8% in the West.

More heartening is the news that inventories are growing. NAR reported them up for the second month in a row, this time by 2.8%. The 1.85 million for-sale homes are estimated at a 4.1-month supply, about two months shy of what NAR considers sufficient and the reason current marketing time is only 26 days.

Record Net Worth

The mood of the aforementioned Fannie Mae forecast was also mixed. It called the April housing news--sales and construction--“downbeat,” but also reported that the net worth of households who own homes hit a record high of $100 trillion in the first quarter of the year. The home equity part of that calculation grew at the greatest rate in five years, offsetting the first drop in stock wealth in 10 quarters. The average homeowner has an equity share of 59.7%, the highest since the end of 2005.

Another score for the conventional wisdom about homeownership and wealth.